Oz inflation data could boost dollar

Photo / APN

The New Zealand dollar could go higher still as markets await inflation data out of Australia this afternoon.

The New Zealand dollar was holding at 87.25 US cents this morning as stalled negotiations to lift America's debt ceiling kept the greenback under selling pressure.

Kevin O'Sullivan of OM Financial said the markets were driven by headlines and today's inflation data could "easily" add half a cent to the NZ dollar.

"If Australia rules out any rate cuts, which is the more likely scenario, then you are going to see more money coming into New Zealand which will push the dollar up."

However the debt ceiling continued to be the main driver of the dollar, he said.

"You may get a relief rally in the US dollar should they get through this issue, which will see the NZ dollar come off a few cents, but I think it will be fairly short-lived."

US policymakers are still trying to reach agreement on how to lift their US$14.3 trillion debt limit, with President Barack Obama and Speaker of the House John Boehner accusing each other of not compromising in nationally televised speeches yesterday.

That pushed the kiwi dollar to a fresh post-float high of 87.42 US cents as investors fled their greenback holdings.

New Zealand Finance Minister Bill English this morning told Radio New Zealand the currency may go higher if the US government doesn't cut a deal, but that the local economy should weather an American debt crisis.

"A weak US dollar is the big theme around the world and is effecting a lot of things, including commodity prices," said Imre Speizer, market strategist at Westpac Bank. "The kiwi is starting to get a little over bought, but there's nothing to signal it's going to turn around."

Speizer said the currency may trade between 86.80 US cents and 87.50 cents today, with Australian inflation data and the National Bank Business Outlook the major local event.

Analysts will be looking for inflationary signals, such as pricing expectations, in today's business survey ahead of the Reserve Bank's official cash rate review tomorrow. Governor Alan Bollard is expected to keep the benchmark rate unchanged at 2.5 per cent, but the strength of the currency and unexpectedly strong second-quarter inflation may prompt him to comment in his one-page report.

NZ HERALD ONLINE/BUSINESSDESK